Debtors are required to identify and value all property during the bankruptcy process. Legal exemptions are then applied to protect the debtor’s equity in his property. Since most exemptions are capped, it is important to avoid over-valuing personal property, especially a personal vehicle that may become the subject of litigation.
The standard for valuing a vehicle in bankruptcy is its “replacement value.” Replacement value is the price a retail merchant would charge for a vehicle like yours, with similar age and condition. Unfortunately, there is disagreement in the federal bankruptcy courts over the process for finding replacement value. Bankruptcy courts allow the use of a valuation guide, such as Kelley Blue Book or N.A.D.A., as a starting point, but disagree on whether the initial valuation should be at suggested retail value or private party value. Retail value is the amount a person expects to pay at an auto dealership; while private party value is what one would pay to a private individual selling his car. The difference between these two starting points can be thousands of dollars. Consequently, it is important to know what value the local bankruptcy court uses before completing the initial bankruptcy schedules.
Most courts use suggested retail value from a valuation guide as the starting point for vehicle valuation. The guides assume that a retail vehicle has been reconditioned and is in “excellent” condition. For instance, Kelley Blue Book retail price assumes that the vehicle:
- Looks new and is in excellent mechanical condition
- Has never had any paint touch-ups and/or bodywork
- Does not need reconditioning
- The engine compartment is clean and free of leaks
- Is free of rust
- The body and interior are free of wear or visible defects
- Wheels are flawless
- All tires match and are like new
- Has a clean title history and will pass a safety and smog inspection
- Has complete and verifiable service records
Excellent condition is a high standard that most privately owned vehicles cannot meet. However, if the local court starts from this condition it is up to the debtor to produce evidence that the vehicle is worth less. Some examples of evidence that the bankruptcy court may consider are:
- repair appraisals for mechanical or body defects
- reconditioning costs
- deductions for accidents (CarFax often includes deduction estimates for major mechanical repairs and accidents)
The vast majority of valuation issues are resolved quickly when the debtor produces documentation to the trustee or objecting creditor. If the issue is important enough, an appraiser may be called to give an expert opinion to the bankruptcy court.
Your bankruptcy attorney is experienced in assisting you in the valuation process for your vehicle. Call today to get the relief you need and protect your property.